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Lisa Palu
Senior Consultant

It is incredible that in a nation with such abundant gas reserves, there are predictions of a gas shortage on the east coast of Australia come 2023.

That means without a game changer at five minutes to midnight, Australians living in Victoria will feel the full force of winter on some days in three years’ time when their heaters stop working.

This week’s approval of the Santos Narrabri gas project is helpful but not enough.

While there is a lot of media coverage about Australia’s east coast gas market, much of it is wrong, either deliberately to support a commercial or environmental position or just through a lack of understanding of a seemingly complex but in reality simple situation.

In a nutshell, a vibrant manufacturing industry and warm homes in Australia’s southern states, particularly Victoria, happened in the 1960s on the back of cheap gas from Bass Strait. It was simple - poke a hole in the ocean floor, build a short pipeline to the shore and large quantities of low-cost molecules flowed.  Nobody worried about the fish or the shore birds, approval processes were quick and easy.

But recently these gas fields have started to run down quicker than anybody expected, and while there is still plenty of gas in Bass Strait, there is now a long, difficult and expensive process for approval to extract it.

At the very same time, by sheer coincidence, Queensland started exporting huge quantities of gas, chilled to -161 degrees Celsius, from Curtis Island in Gladstone harbour.

There are three LNG producers on Curtis, and they were invited by the Queensland Government to exploit our State’s vast reserves of coal seam gas to develop a new royalty-earning export industry. They have each invested tens of billions of dollars, underpinned by long-term (~20 years) sales and purchase agreements of huge volumes, which is the only way these high cost projects stack up economically.

At no time before or during project development were these exporters told they needed to supply the domestic market. Fortunately one producer in particular thought it was prudent to ensure it could extract more than it needed for its long-term export contracts, and this gas is now being sent south to fill the growing hole created by falling production in Bass Strait.

While this is fortunate, it cannot last.

Firstly, there is not enough pipeline capacity to get the volumes of gas south to meet the demand and secondly it is expensive gas to produce, even more expensive once you have piped it from Central Queensland to Melbourne.  

And thirdly there is the problem of volume. For context, everyday LNG carriers are docking at Curtis Island, each load about four petajoules of gas in around 24 hours before they sail out of Gladstone Harbour again. Contrast that to manufacturers in Australia’s southern states who are currently knocking on the doors of Queensland’s exporters, looking for just a couple of petajoules of gas for delivery over an entire year!

For even more context, the total demand for gas, both for homes and industry, across Queensland, New South Wales, Victoria, Tasmania and South Australia for 2020 was forecast by AEMO (Australian Energy Market Operator) to be around 600 petajoules (or about 150 LNG tankers’ worth).

You can see the mismatch, these projects were not designed for small volumes and it’s just not possible to retrofit them to reliably send tiny volumes vast distances down a small pipe, and expect the gas to be cheap at the other end. 

And as the Federal Government understands, intervention in this market is fraught with danger, as forced cheap gas today will mean no gas tomorrow.

Victoria’s looming gas shortage cannot be solved by Queensland’s exporters. Victoria has vast off- and on-shore gas reserves which must be exploited with urgency. The only real solution is for government to provide leadership so supply close to demand can be quickly developed.

In the meantime, sadly expect to read and hear many more words about Australian gas, but until the talk is about new Otway or Gippsland Basin gas fields, it’s all just hot air.

Lisa Palu, Senior Consultant, who has worked in Queensland’s gas industry since 2011.

 

 

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